Foreign Exchange and Tax: What Expats Need to Know When Selling Overseas Investments

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Why Currency Matters in Tax

The Australian Tax Office (ATO) requires all capital gains and income to be reported in Australian dollars, not the foreign currency you purchased the investment in.

This creates a complication:

• Your purchase price (the cost base) is converted into AUD using the exchange rate at the time you bought the asset. 
• Your sale proceeds are converted into AUD using the exchange rate at the time you sell. 

This means exchange rate fluctuations can create a taxable gain or loss, even if the investment itself didn’t increase in value in its original currency.

Example:

• You buy US shares for USD 10,000 when AUD/USD = 1.00 (cost base = AUD 10,000). 
• Years later, you sell them for USD 10,000, but now AUD/USD = 0.70. 
• Sale proceeds = AUD 14,285. 
• Result: You’ve made no gain in USD, but in AUD terms, you face a $4,285 taxable capital gain – purely because of currency movements. 

What Happens When You Return to Australia?

Once you re-establish Australian residency, you become taxable on your worldwide income and gains. This means any overseas investments sold after that point are brought into the Australian tax system.

Here’s the key point:

• In some cases, when you resume residency, the ATO allows a reset of your cost base to the market value of your overseas assets at the time you return. 
• This “deemed acquisition” rule can reduce the impact of past exchange rate movements and ensures you’re only taxed on gains that occur from the time you’re back in Australia. 

Strategies for the Best Outcome

Every expat’s situation is different, but here are some common approaches:

• Review the timing of sales – In some cases, it may be more efficient to sell while you’re still a non-resident, depending on local tax rules and treaty benefits. 
• Make use of the cost base reset – Where eligible, this can neutralise past foreign exchange gains and limit tax to the period of Australian residency. 

Plan ahead – A structured exit and re-entry plan can help you avoid unnecessary “phantom gains” created by currency shifts.

The Bottom Line

Foreign exchange rates can significantly influence your tax outcome when selling overseas investments as a returning expat. The right strategy can mean the difference between paying unnecessary tax on currency movements or only paying on the true investment gain.

If you’re planning to return to Australia or are already back and hold foreign investments, now is the time to review your position.

👉 At Unicorp Partners, we specialise in guiding Australian expats through these complex cross-border tax and financial planning issues.

Need help navigating expat tax and investments?

Contact us today to discuss how to structure your assets for the best tax outcome as you transition back to Australia.

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